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What happened in Dubai's stock market yesterday?

Sudden, unexpected burst if buying in the final 30 minutes of trading at DFM

By Adel Merheb

Wed 10 Jun 2015 10:46 AM

If you were watching the trading session in Dubai yesterday then you were probably as surprised as many over the intensity of the rally we saw in the last 30 minutes. There was a sudden burst of buying in many stocks that quickly spread to the rest of the market and it was completely unexpected. The move seemed to have started with Arabtec which actually began a high volume rally 5 to 10 minutes before the rest.

At first glance and judging by the type of stocks that rallied the most and the manner in which they rallied, our first impression was that this was a locally driven move as it was typical of the type of rallies we historically saw when local and regional speculators became active participants in the market. However, the data may not necessarily agree with that theory or at the very least, it suggests that there was more to it.

Having a proper context is essential so before I share our take on what yesterday’s session implies, let’s have a quick recap:

What was the state of the market up until yesterday?

On June 2, we published a note titled “Up or Down” in which we tried to read through the latest market behaviour and how we thought traders and investors should be positioned in the near-term. We made two key points:

1. The market was in a balance zone and in need of a catalyst before it can move in either direction.

2. Foreigners were consistent net buyers both in April and May regardless of market performance and that gave us enough reason to justify having an exposure to the blue chips in Dubai and the UAE.

Our take on June 2 was and I quote: “This consistency in net foreign buying through varying market conditions indicates that their investment behaviour reflects a positive conviction call on the overall market. Therefore, and given the weight we attribute to foreign investment patterns whenever formulating a directional view on the UAE, we still believe the risk is justified to maintain exposure to the blue chips in Dubai in particular and the UAE in general”.

So what happened yesterday?

I have yet to read or hear a valid reason that would explain yesterday’s move and until I do, I would stick to this:

1. After a very weak Q1, Dubai and the UAE in general was lifted by a heavy net buying pressure from foreign investors which pushed Dubai up by 20% in April alone thereby saving the year for investors.

2. Then came May and with it a loss in momentum and a drop in liquidity…Still, foreign investors were buying (please refer to our attached June 2 note for details on this)

3. Up until yesterday, June has been pretty much an extension of May…foreigners have remained consistent net buyer.

4. And then there was yesterday…A big momentum push that pretty much spread to the rest of the market and guess what? Foreigners were buying. In fact, they constituted 93% of all net buying activities with locals and regionals finishing the session as net sellers.

Now I am not saying foreign buying activities were behind the rally in Arabtec or any of yesterday’s top performers. In fact, we know that the bulk of the net buying actually went into Emaar, again - two-third of the net foreign activity went into Emaar yesterday.

What does this mean?

Having already expressed a long bias towards Dubai and the UAE, despite the uncertain environment we described in our last note, we believe that a continuation of the momentum we saw yesterday in the coming two to three days will probably mean that the balance zone we talked about post the April rally is nothing but a consolidation which will set the stage for a move higher, possibly, the good old 4500.

We do not take what happened yesterday lightly as it was very different from everything we have seen since the dull trading range began in early May. The momentum and intensity we witnessed yesterday may very well be a precursor for gains ahead.